| Metric | Current Period | Prior Year Period | YoY |
|---|---|---|---|
| Revenue / Net Sales | ¥9215.9B | ¥6954.2B | +32.5% |
| Operating Income / Operating Profit | ¥446.7B | ¥489.7B | -8.8% |
| Ordinary Income | ¥649.7B | ¥662.2B | -1.9% |
| Net Income / Net Profit | ¥200.5B | ¥206.0B | -2.7% |
| ROE | 4.4% | 5.1% | - |
For the fiscal year ended March 2026, Revenue was ¥9215.9B (YoY +¥2261.7B +32.5%), Operating Income was ¥446.7B (YoY -¥43.0B -8.8%), Ordinary Income was ¥649.7B (YoY -¥12.5B -1.9%), and Net income attributable to owners of parent was ¥476.1B (YoY +¥55.7B +13.3%). Large revenue growth in the Lease & Installment segment (+33.8%) drove top-line expansion; however, margin compression — gross margin 9.6% (prior year 12.4%, ~280bp decline) and operating margin 4.8% (prior year 7.0%, ~220bp decline) — led to lower operating profit. Equity-method investment income of ¥224.6B (YoY +¥44.6B) supplemented profit at the ordinary-income level, enabling final-period net profit growth despite operating decline. Operating Cash Flow was ¥-90.6B (improved from ¥-3,933.2B prior year) but remained weak relative to net income at -0.19x, indicating challenges in converting profit to cash. Free Cash Flow was ¥-1,250.7B driven by large investments in investment securities; financing cash flow of ¥+1,463.7B (debt issuance and borrowings) financed the investment outflows.
[Revenue] Revenue of ¥9215.9B (+32.5%) was led by Lease & Installment segment revenue of ¥8635.9B (+33.8%), representing 93.7% of total revenue. Finance segment revenue was ¥453.3B (+3.6%), and Other was ¥146.3B (+67.4%). The rapid expansion in Lease & Installment was supported by larger deals in real estate, industrial machinery, transportation equipment, and large SPC-directed transactions (disclosed revenue of ¥1069.0B to a major client JUL special purpose company). By geography, domestic sales accounted for over 90%; overseas expansion was limited. Gross profit was ¥888.6B (+2.5%) but gross margin contracted to 9.6% (down ~280bp from prior year 12.4%), reflecting squeezed spreads from higher funding costs and lags in price pass-through.
[Profit & Loss] Operating Income of ¥446.7B (-8.8%) reflected SG&A of ¥441.9B (+18.2%) increasing more than gross profit (+2.5%), producing negative operating leverage. By segment, Lease & Installment operating income was ¥268.5B (-5.3%, margin 3.1%), and Finance was ¥170.1B (-28.6%, margin 37.5%); the large decline in Finance profits pressured consolidated operating income. Ordinary Income of ¥649.7B (-1.9%) was supported by equity-method investment income of ¥224.6B (approximately 80% of non-operating income ¥280.3B), offsetting increases in interest expense of ¥69.8B (prior year ¥46.8B, +49.4%). Pre-tax income was ¥668.0B (+1.4%); income taxes were ¥179.3B (effective tax rate 26.8%), and non-controlling interests were ¥12.6B, resulting in net income attributable to owners of parent of ¥476.1B (+13.3%). Extraordinary items comprised investment securities sale gains of ¥42.9B (extraordinary income) and investment securities valuation losses ¥12.5B plus fixed asset retirement losses ¥0.3B (extraordinary losses), producing only minor divergence between ordinary and net income. In summary, this was a revenue-up / operating-profit-down result supplemented by non-operating income.
The Lease & Installment segment reported Revenue ¥8635.9B (+33.8%) and Operating Income ¥268.5B (-5.3%, margin 3.1%), with margin down ~130bp from prior year (approx. 4.4%). Revenue growth was mainly driven by expansions in real estate, industrial machinery, and environmental energy-related projects, but margins compressed due to higher funding costs and deterioration in residual values and credit conditions. The Finance segment reported Revenue ¥453.3B (+3.6%) and Operating Income ¥170.1B (-28.6%, margin 37.5%), a sharp decline from prior-year margin (~54.4%, down ~17pt), reflecting lower profitability on real estate, ship, and aircraft projects and weaker returns on loans and equity investments. The Other segment reported Revenue ¥146.3B (+67.4%) and Operating Income ¥19.3B (+37.9%, margin 13.1%), aided by expansion in used-property transactions and power generation business. Corporate-wide cost adjustments were ¥-11.2B (prior year ¥-46.0B), narrowing and indicating progress in cost efficiency.
[Profitability] Operating margin was 4.8% (down ~220bp from 7.0% prior year), and net margin was 5.2% (down ~80bp from ~6.0% prior year), indicating deteriorated profitability. ROE was 4.4% (similar to prior year), though the calculation base (net income ¥476.1B / equity ¥4,544.7B) implies approximately 10.5%; on an attributable-profit basis this suggests improved capital utilization. ROA (based on ordinary income) was 1.6% (prior year 1.8%), slightly lower. [Cash Quality] Operating CF / Net Income was -0.19x (improved substantially from -19.1x prior year) but cash conversion remains low. Equity-method investment income ¥224.6B (non-cash), increases in working capital (trade receivables -¥46.1B), interest paid -¥405.7B, and taxes -¥207.9B pressured operating CF. FCF was -¥1,250.7B, driven by investment securities purchases -¥1,068.9B and subsidiary stock acquisitions -¥294.4B. [Investment Efficiency] Total asset turnover was 0.221x (annualized), a standard level for asset-heavy operations. Equity-method investments and investment securities comprised about 11.9% of total assets; simplified ROIC estimate (operating income / total assets ≈ 1.1%) may be below cost of capital. [Financial Soundness] Equity Ratio was 10.9% (up slightly from 10.3% prior year), D/E 8.19x (prior year ~8.70x), Debt/Capital 81.1%, indicating high leverage. Interest coverage approx. 6.4x (EBITDA proxy / interest paid) exceeds a baseline but resilience to rising rates is limited. Current ratio 131%, quick ratio 131%, but a large portion of current assets are lease receivables and marketable securities, limiting immediate liquidity. Cash and deposits ¥889.4B versus short-term interest-bearing liabilities (CP ¥5,492.6B + short-term borrowings ¥7,669.8B + current portion of long-term debt ¥3,817.5B + current bonds ¥827.9B) totaling ~¥17.8T, yielding cash / short-term liabilities 0.05x and highlighting strong dependence on short-term rollovers.
Operating CF was ¥-90.6B. Starting from pre-tax income of ¥668.0B, operating CF subtotal was ¥480.1B (after adjustments for depreciation and equity-method profits), but working capital increases and interest/tax payments produced large outflows. Key drivers included deduction of non-cash equity-method investment income ¥224.6B, increase in trade receivables -¥46.1B, increase in trade payables +¥48.6B, interest paid -¥405.7B, and corporate tax payments -¥207.9B. Investing CF was ¥-1,160.1B, led by investment securities purchases -¥1,068.9B and subsidiary stock acquisitions -¥294.4B, partially offset by investment securities sales +¥179.3B and subsidiary disposals +¥23.2B. Financing CF was ¥+1,463.7B, driven by net increases in borrowings (short-term borrowings +¥536.9B, net long-term borrowings +¥2,204.7B) and net increase in bonds +¥93.0B (issuances +¥735.2B, redemptions -¥641.2B), while CP net decreased -¥1,133.4B and dividend payments -¥146.9B were outflows. FCF was ¥-1,250.7B, indicating an investment-driven cash cycle funded by external financing. Cash increased ¥208.0B, reflecting net financing surplus and accumulation of liquidity.
Of Ordinary Income ¥649.7B, Operating Income ¥446.7B (68.8% of ordinary income) and equity-method investment income ¥224.6B (34.6%) are the two pillars, indicating high reliance on equity-method income. Equity-method income is sensitive to investee performance and market conditions and is not a stable recurring earnings base, introducing volatility. Non-operating income of ¥280.3B comprised equity-method income ¥224.6B, dividend income ¥7.8B, and other ¥46.1B (likely including FX and derivative-related gains). Extraordinary items were investment securities sale gains ¥42.9B and valuation losses ¥12.5B, so one-off impacts were minor. From an accruals perspective, operating CF ¥-90.6B versus consolidated net income ¥200.5B (including non-controlling interests) yields operating CF / net income -0.45x, indicating a large gap in cash conversion. The non-cash nature of equity-method income and working-capital increases have inflated accounting profits; investors should note divergence between accounting profit and actual cash-generating ability. Comprehensive income ¥570.9B (parent ¥563.6B) exceeded net income ¥200.5B by ¥370.4B, driven by other comprehensive income items such as foreign currency translation adjustments +¥1.9B, valuation differences on available-for-sale securities +¥17.4B, deferred hedges +¥18.3B, retirement benefit adjustments +¥5.6B, and equity-method investee OCI share +¥39.1B, indicating AOCI movements have bolstered equity.
For FY2027 (year ending March 2027), the company forecasts Operating Income ¥400.0B (YoY -10.5%), Ordinary Income ¥670.0B (YoY +3.1%), Net income attributable to owners of parent ¥520.0B (YoY +9.2%), and EPS forecast ¥170.96. The operating income outlook is conservative, assuming continued margin pressure, but ordinary and net income are projected to rise assuming stable contributions from equity-method investments. At the half-year mark, Operating Income of ¥446.7B represents 111.7% of the full-year forecast, Ordinary Income ¥649.7B is 97.0% of the full-year forecast, and Net income ¥476.1B is 91.6% of the full-year forecast, indicating profit front-loading in the first half. The second half guidance is conservative, reflecting seasonality and potential spread volatility. Dividend forecast is ¥26.00 per share (interim ¥25 + year-end ¥26, annual ¥51), same level as prior year; payout ratio on forecast basis is approximately 30.4% (26 ÷ 170.96 × 2). The forecast notes explicitly account for the impact of share issuance and the introduction of a share-based remuneration trust, and guidance is presented on a dilution-adjusted basis.
For FY2026, dividends comprised interim ¥25 and year-end ¥26 for an annual ¥51, with payout ratio 30.4% (based on reported EPS ¥169.98), which is a sustainable level. Prior year had only an interim ¥20, so annualized comparisons differ, but dividend levels were effectively maintained or slightly increased. Total shareholder return comprised only dividend payments of ¥146.9B; no share buybacks were executed, indicating focus on dividend-based returns. Given FCF of ¥-1,250.7B, dividend payments were funded through financing cash flow (borrowings and bond issuance) rather than operating cash flow, implying insufficient cash coverage. However, equity ¥4,544.7B and cash & deposits ¥889.4B provide a financial buffer, and because the payout relative to attributable profit (¥476.1B) remains restrained, short-term dividend sustainability concerns are limited. FY2027 dividend forecast ¥26 (annual ¥51 assumed) is unchanged; payout ratio against forecast net income ¥520B is ~27.9% (total dividends ¥144B / ¥520B), maintaining a conservative shareholder-return policy. In financial firms, dividend sustainability depends on balancing profit levels, equity ratio, and rating maintenance, so managing leverage and capital discipline remains a prerequisite.
Spread Compression Risk: Gross margin 9.6% (YoY ~280bp decline) and operating margin 4.8% (YoY ~220bp decline) indicate ongoing margin deterioration. With rising funding costs (interest expense ¥69.8B, YoY +49.4%), there is a lag in passing increases through to lease/installment rates and finance interest rates, compressing spreads in the near term. Prolonged high interest-rate environment poses the risk of sustained profitability decline.
Liquidity & Rollover Risk: Cash & deposits ¥889.4B versus short-term interest-bearing liabilities (CP, short-term borrowings, current portion of long-term debt, current bonds) of ~¥17.8T yields cash / short-term liabilities 0.05x, indicating extreme reliance on short-term funding rollovers. Deterioration in CP or short-term borrowing markets could lead to funding strain or abrupt increases in funding costs. Maturity mismatch (long-term lease assets and investment securities funded by short-term liabilities) is a structural risk.
Equity-Method Investment Income Volatility: Equity-method investment income ¥224.6B accounts for ~34.6% of Ordinary Income ¥649.7B, making results highly sensitive to investee performance and market cycles. With investment securities at ¥4,952.6B (YoY +31.3%) and a growing investment portfolio, a deterioration in investee performance or increased valuation losses (current period ¥12.5B) could materially reduce ordinary income.
Profitability & Return
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Operating Margin | 4.8% | 8.8% (4.0%–20.0%) | -4.0pt |
| Net Margin | 2.2% | 4.3% (0.6%–11.3%) | -2.1pt |
Profitability is below the industry median, and margin compression is relatively notable within the sector.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 32.5% | 2.1% (-4.5%–6.9%) | +30.4pt |
Revenue growth significantly outperformed the industry median, driven by deal expansion and large SPC-directed transactions.
※ Source: Company compilation
Structural causes of margin compression and potential recovery scenarios: The ~280bp decline in gross margin and ~220bp decline in operating margin are mainly due to rising funding costs and price-pass-through lags. If interest rates remain elevated, managing spreads and selective deal origination (rebuilding a portfolio focused on profitability) will be key to recovery. Meanwhile, stable equity-method income has supported ordinary and net income, providing short-term non-operating support. Next fiscal year guidance assumes operating income decline but final profit growth, premised on continued equity-method contributions.
Cash generation and sustainability of the investment cycle: Operating CF of ¥-90.6B (net income coverage -0.19x) indicates weak cash conversion, albeit a large improvement from ¥-3,933B prior year. FCF ¥-1,250.7B reflects strategic outflows for investment securities and M&A, funded by financing CF ¥+1,463.7B (borrowings and bond issuance). Heavy reliance on short-term rollovers (cash / short-term liabilities 0.05x) means liquidity risk could surface if funding conditions deteriorate. Going forward, turning operating CF positive and shortening project collection periods will determine the sustainability of the investment cycle.
Industry positioning and strategic direction: Revenue growth +32.5% far outpaces the industry median (+2.1%), but operating margin 4.8% (median 8.8%) and net margin 2.2% (median 4.3%) place the company in a lower tier within the industry. While leverage and equity-method investments achieve ROE of 10.5%, ROIC remains low and there is significant room to improve capital efficiency. Investors will monitor spread improvements, increases in project-level IRR, and persistence of non-operating income (equity-method) going forward. Dividend payout ratio of 30.4% indicates conservative shareholder returns, prioritizing internal retention for capital strengthening and growth investment.
This report is an AI-generated financial analysis document produced by analyzing XBRL financial statement data. It does not constitute a recommendation to invest in any particular security. Industry benchmark figures are compiled by the firm from public financial statements as reference information. Investment decisions are your responsibility; consult a professional advisor as needed.